Bet On The Growth And Mo­men­tum Stocks To Re­main In The Game

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In­dian stock mar­kets wit­nessed an ob­vi­ous in­sta­bil­ity at the peaks dur­ing Au­gust de­riv­a­tives ex­piry, where bears strived for an attack, but bulls were in no mood to sur­ren­der. How­ever, very poor mar­ket bias and depth along with lit­tle mo­men­tum on the up­side has been a big worry for the in­vestors. The se­lect few high weigh­tage stocks con­sti­tut­ing more than 95% of the indices are trail­ing at record high lev­els with daily higher highs, keep­ing all other stocks ei­ther sub­dued or in the neg­a­tive ter­ri­tory.

On the do­mes­tic front, In­dian ru­pee has hit his­toric low level of 70.82 against the dol­lar, mak­ing it the worst per­form­ing cur­rency in Asia. The bounce­back in the Brent crude prices to multi-month high of USD 77.76 brought about higher dol­lar de­mand from the im­porters. This. along with the rise in gold and coal prices, could worsen the cur­rent ac­count deficit (CAD) of the coun­try, which is al­ready at 3% of the GDP. Even the fis­cal deficit is near­ing its record lev­els of USD 200 bil­lion in FY19.

The higher the CAD, weaker would be the ru­pee, thereby mak­ing it dif­fi­cult for the in­dus­tri­al­ists to go for ex­ter­nal bor­row­ings, though ex­ports are inch­ing up. Post the Q1FY19 cor­po­rate re­sults, the coun­try is wit­ness­ing re-buy­ing by the for­eign in­sti­tu­tional in­vestors. More­over, the re­mit­tances by the NRIs into the coun­try, which is cur­rently 2% of the GDP, is hav­ing a cush­ion­ing ef­fect.

The re­lease of GDP data and fis­cal deficit seem to have been dis­counted by the mar­kets. All said and done, now all eyes would be on the RBI mone­tary pol­icy. It would be in­ter­est­ing to see whether the RBI would boost the growth mo­men­tum at slightly higher in­fla­tion level of 5.5% or else im­pose one more repo rate hike and main­tain the in­fla­tion at its tar­get of 4%. Septem­ber is about to start and the re­lease of the macroe­co­nomic num­bers will be fol­lowed by the data on eight core in­dus­tries and other reg­u­lar re­leases.

On the global front, Trump is back onto his pinch­ing spree with the on­go­ing trade tar­iff wars with China and Turkey and pro­tec­tion­ist stance against Canada. This time the US and Mex­ico agreed a re­vised deal of the North Amer­i­can Free Trade Agree­ment (NAFTA) sans Canada. Trump also threat­ened to tax Canada’s au­to­mo­tive sec­tor if the deal is not agreed upon. This might dampen con­cerned com­pa­nies in the In­dian au­to­mo­bile sec­tor.

In­dian stock mar­kets are ris­ing, but the port­fo­lios are yet to re­flect the same. Se­lect stocks with high weigh­tages in the ma­jor indices are pulling the mar­kets up, cre­at­ing a mis­lead­ing pic­ture about the mar­kets. If these hand­ful stocks un­dergo correction, the bench­mark and broader indices will not take time to re­verse from the cur­rent lev­els. How­ever, the state and gen­eral elec­tions at the doorstep may keep the mar­kets go­ing, de­spite the cur­rency and global macro hic­cups.

Main­tain­ing our ear­lier view, we sug­gest our in­vestors to stay with the bot­tom-up ap­proach of stock se­lec­tion and fol­low the trend and mo­men­tum in­di­ca­tors, along with growth or re­viv­ing fi­nan­cials. The growth or bro­ken out stocks should be pre­ferred to the bot­tomed out ones.

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